War Stories: Stay Humble Or The Market Will Do It For You.

Know what you know and know what you don't. And no matter how good you think you are, remember to stay humble.

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It was the turn of the century and change was afoot. As fears of Y2K swept the Street and the stock market scaled the wall of worry, Wall Street was flush with newfound wealth and irrational exuberance.

It was an exciting time to be a trader as money magically meandered overhead like some sort of magic carpet ride. If you weren't cutting a rug, you were missing out. And everyone from taxi drivers to stay-at-home moms had their dancing shoes on.

I was already a veteran of my chosen profession, having honed my skills at Morgan Stanley for seven years before managing the derivative portfolio at a billion dollar New York hedge fund. At 30 years old, some would say that I achieved a level of accomplishment in a world filled with grizzly old timers.

But there was plenty to do and more to make, the self-serving motivation of an over-achiever that drove me to the next best trade.

I knew Jim Cramer and Jeff Berkowitz for many years, having covered their account at Morgan and forging a solid friendship with Jeff as we grew from boys to men. We swapped ideas, shared insights and traded billions of dollars worth of stock as we blazed separate yet similar paths.

It was a period of discovery, unbeknownst to us at the time, and it was time tested and profit proven.

As 1999 drew to a close, our circles began to overlap with increased frequency. I was ready to take the next step in my career and Cramer Berkowitz was ready to transform their trading desk from an execution platform to a legitimate revenue generator. They already had the intellectual capital in house and the performance to prove it.

Our imminent marriage was one that would lift us all to the next level and establish our firm as a force to be reckoned with.

The courtship was seamless as we took the necessary steps to consummate the relationship. I would join the firm as a partner and run their entire trading operation. I asked for full autonomy on staffing decisions, commission direction and risk management systems. They assured me that it was my ball to run with and, as we uncorked several bottles at Gramercy Tavern, the deal was struck with hugs and handshakes.

I tendered my resignation at The Galleon Group and took the first cab I could find to 40 Fulton Street. I was hungry yet humble, excited yet nervous, enthusiastic yet measured.

The existing core of traders had been with Cramer Berkowitz for years, dutifully executing the vision and vibes of Jim, Jeff and Research Director Matt Jacobs. I was schooled a bit differently, however, and believed that the trading process could be additive and accretive to the research functionality.

I assumed my position at the head of the desk and committed myself to quietly observe the people who would become my professional family for the next three years. But as I would quickly learn, my role at Cramer Berkowitz would be far from quiet and anything but normal.

Just the way I like it.

The elasticity of the bubble shaped the collective mindset into the perceived reality that a new paradigm was upon us.

Hindsight provides clarity, if not lessons, but for those managing money, the price action was nothing short of surreal. Each day was a journey unto itself, a volatile manifestation of emotion that somehow morphed net worth into self worth at the end of each trading session.

I couldn't have scripted a better beginning to my newfound existence. After an opening flurry of emotional buying, the NASDAQ quickly dipped 450 points-11%--in a matter of days. It was trial by fire and our desk jelled as if we had worked together for years. They say everything is funny when you're making money and there were giggles all around as the ink dried on my contract.

Perhaps we were all on our best behavior but make no mistake, we were a collection of distinctly powerful personalities with proven formulas for success. Jeff had a brilliant analytical mind, Matt was plugged into the Street, Jim was a master of momentum and I liked to use volatility to my advantage.

When we were on the same page, it was akin to four chefs mixing the perfect brew. And as we collectively captured the violent market swings, we drank the sweet taste of success like nothing I've ever experienced.

Feeling emboldened, and perhaps swinging at a pitch outside my strike zone, I stumbled across a "special situation." Focus Enhancements (FCSE) was an obscure tech stock that I sensed was primed to take off. As we were making money hand over fist-and as I was trading particularly well-my partners were only too happy to indulge me. We established a large position and sat back as it traded between $6 and $8.

We were in a serious groove and our internal confidence was matched only by our growing reputation around the Street. With the market swinging wildly-10 to 15% at a clip-we seemingly had the script in our hands before it hit the tape. By the end of February, we had established a sizable lead on the averages and a boldness that bespoke our performance.

In hindsight, that was the first warning flare.

"Fucksee on the tape!" screamed Matt Jacobs as we all trained our eyes on the headline. It was negative news and the stock dropped 30% before we took our next breath. Nobody said a word as phones rang unanswered and Maria chattered away in the background.

I was frozen-we all were-despite the fact that the loss was a pimple in the much broader complexion of our portfolio.

I have always been my own harshest critic and hold myself to unachievable standards. Nobody needed to tell me I screwed up. They knew it, I knew it, we all knew it.

This was one trade-a big trade but one trade-in the context of a series of profitable decisions that had netted our firm millions of dollars. Still, what I experienced that day--the raw, unnerving, realization of an unrecoverable loss--provided a valuable lesson that I will never forget.

No matter your track record and regardless of your pedigree, you're only as good as your last trade.

Any trader worth his or her own salt accumulates battle wounds over time. Mistakes are made, lessons are learned and, hopefully, experience provides a context for a better, sounder decision making process.

I was named president of Cramer Berkowitz the following year but the Fucksee scar remains to this day.

Know what you know and know what you don't. And no matter how good you think you are, remember to stay humble.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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